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The future is Asian: An interview with Parag Khanna

How will the rise of emerging Asian economies affect the global balance of market and economic power? AIQ speaks to a leading authority on the subject.

7 minute read

earth from space sun rise over Asia

The idea that China will come to dominate global affairs in the 21st century is now widely considered a truism. But a new book offers an alternative view.

In The Future is Asian: Commerce, Conflict & Culture in the 21st Century, Parag Khanna argues the rise of China has obscured a bigger, more interesting story. Asia is dizzyingly vast and diverse, containing five billion people and contributing two-thirds of global economic growth. Beyond China, Asian economies are growing increasingly rich and populous, counterbalancing Beijing’s influence in many areas. What we are seeing, Khanna says, is not Chinese hegemony, but the beginnings of a radically “multi-polar world”.

Khanna is a well-established authority on global geopolitics. The founder and managing partner of FutureMap, a data- and scenario-based strategic advisory firm, he has authored a series of books on great power relations. He holds a PhD from the London School of Economics and has worked as an adviser to the US National Intelligence Council’s ‘Global Trends 2030’ programme.

In this interview with AIQ, Khanna discusses the implications of the rise of Asia, from consumption patterns in Vietnam and infrastructure projects in Africa to military standoffs on the Himalayan plateau. He points to the emergence of a dynamic new order based on “transparency, sovereignty and openness”.

In your new book, you argue that the West’s view of the Asian continent is overly focused on China. What are we missing?

First of all, China is part of the rise of Asia; it is a very big part of it. It’s the most powerful and populous state in Asia. But the correct way to understand the evolution of Asia is not to look at countries like Japan, China and India as inherently competitive entities but rather as waves of mutually-reinforcing growth. The modern Asian growth story begins with post-war Japan in the 1950s and 1960s; then the Asian Tigers of Taiwan, South Korea, Hong Kong and Singapore in the 1970s and 1980s; and then China in the 1990s and 2000s to the present. Each wave has been a key investor in the next wave.

And the story doesn’t stop there. If you think about it from a demographic standpoint, Asia’s greatest growth wave hasn’t even begun yet.

People conflate China with all of Asia. This is a pretty egregious oversight

There are about five billion people across the Asian continent and the vast majority of them are not Chinese. This is something that is sadly overlooked by most people in the media, and even the analytical community, who conflate China with all of Asia. This is a pretty egregious oversight. And it is problematic from an economic standpoint and a market standpoint, because whenever there is a souring of the mood towards China, a slowdown in growth, investors tend to throw out the baby with the bathwater. They say, “Oh, that’s it for the Asian growth story, let’s pack up and leave now”. That’s not the correct way to look at it. It’s essential to prepare for the next wave of Asian growth.

Where in Asia will this growth wave occur?

South and southeast Asia. Take India, Pakistan and the ASEAN grouping: many of these economies are already growing as fast or faster than China. Together, their GDP will equal China’s in less than 10 years’ time if the present growth rate continues. I see more and more ASEAN integration each year, based on functional infrastructure, supply chains and diplomatic instruments; in all of those areas you see greater and greater coordination. That will help propel further growth among these economies.

How will the trade war affect wider Asia?

There has been a diversion of capital and investment to the countries of south and southeast Asia, reflecting the wider growth story. That process was already underway, but the trade war is certainly going to accelerate the process.

As for China, it’s important to remember import substitution is the law of history. It’s how every empire has become an empire, how every superpower has become a superpower. Whether it’s the British or the Americans or now the Chinese, the story begins with import substitution; there’s an indirect arc from import substitution through to nuclear superpower status. America began practising import substitution when it was just a collection of 13 colonies and that’s the origin of its economic growth, its seizing of the reins of the industrial base from Britain. China is doing the same thing in modern times, making sure it captures the latest technologies from its erstwhile benefactors to become the world’s factory floor. That doesn’t necessarily make what it is doing legal or fair, but its approach is much more consistent with history than people want to admit.

You argue that China is far from hegemonic in Asia, despite its rise to superpower status. Which countries are challenging China’s influence?

India has become a critical contributor to non-China Asia, geopolitically speaking. There was an incident last year on the Doklam Plateau on the border between India and China, in which India stood up to China and China backed down. That proved instructive for other Asian countries. It has fed into the general sentiment across Asia that countries need to stand up to China to avoid being pushed around.

People assume Asia is going to be unipolar under Chinese hegemony. But if you understand Asia in its proper, full geographic breadth, the last time Asia was under a true singular hegemony was the Mongols 700 years ago. That’s not going to happen again. It’s important to recognise Asia’s inherent multipolarity. The most counter-intuitive argument in my book is that the Belt and Road programme – which is planned, funded and spearheaded by China – is not going to accelerate Chinese hegemony; instead it will lead to the return to a more multipolar Asia. This is because of the way infrastructure finance operates. What infrastructure does is help countries modernise, gain confidence and sovereign credit ratings, and more foreign investment. This will ultimately dilute Chinese influence rather than strengthen its hand.

What are the implications of a multipolar Asia for global geopolitics?

The conventional wisdom is that the US is passing the baton to China. I see a much more complex geopolitical landscape in which you have a permanent multipolarity.

The conventional wisdom is that the US is passing the baton to China. I see a much more complex geopolitical landscape in which you have a permanent multipolarity. North America will remain very powerful, most definitely a superpower, and one with more economic autarchy, or self-sufficiency, than any other. I see Europe in the same light, even though many people don’t; by most important measures of power Europe remains a superpower. Then you have Asia balancing out the picture. The result is a global multipolarity the likes of which has never existed before.

I talk of a world in which Asian leadership is exercised more and more, but I don’t talk of an Asian-led world. My argument is that there will not be a single leader. This disappoints people who want a parsimonious and hierarchical view of the world. But we live in a world in which even ‘weak’ countries refuse to submit to the hegemony of a large country, let alone the entire world. Poor and under-developed Myanmar was able to cancel Chinese debt without any reprisals from China, because China was afraid about hurting its global image. We don’t live in a world where Chinese gunboats colonise Africa; we live in a world where Chinese construction engineers and diplomats working in Africa or Asia are thrown down mineshafts or shot in the head. That’s the world we live in. This is not 18th century-style colonialism; it’s a world of radical transparency, sovereignty, openness and scrutiny over everything China does.

So you think talk of China’s imperial ambitions is overdone?

China shares borders with more countries than any other in the world, so it is acutely aware that any geopolitical misstep is going to result in a massive backlash all around its periphery. People have to be much more sophisticated in their thinking. China is not going to bow to the US and the US isn’t going to bow to China and Europe isn’t going to bow to either; I find those kinds of conversations facile. It’s a much more exciting world than we’ve ever seen before – it’s totally globally multipolar and that’s the first time that’s happened in human history.

Your research shows that of the $30 trillion in global middle-class consumption growth between 2015 and 2030, only $1 trillion is expected to come from Western economies. What are the economic implications of this rapid growth in the spending power of Asia?

Asia used to make for the West and now the West makes for Asia

It has been well established for some time Asia has the fastest growing middle class in the world, driven at first by Japan and South Korea and now of course China. India is catching up gradually. Once you add in the demographic clusters in southeast Asia, with their teeming megacities and financial centres, this dynamic will only continue. It shifts the consumer gravity for luxury brands or retail companies. Asia used to make for the West and now the West makes for Asia. That’s how things are playing out in sector after sector. This trend enhances Asia’s leverage quite significantly, in terms of its ability to conduct its industrial policy, to continue to attract foreign investment and to rewrite the rules of global trade and FDI.

You argue ‘demographic stagnation’ will hamper many rich economies in the years ahead. Are Asian economies better placed than Western ones to tackle this problem?

Confronting this challenge comes down to reforming immigration policy and improving productivity. Infrastructure quality is also a big factor. You have this peculiarly ironic situation in which the most evolved cities and societies and urban geographies in the world, such as those in Western Europe, North America and northeast Asia, are the ones that are most rapidly depopulating and won’t be able to survive without higher rates of immigration. But while some Western cities such as Berlin or Toronto (and indeed Canada as a whole) have very liberal immigration policies and are very good at attracting talent, the US and the UK are doing their best to scare it away – and are already feeling the economic pinch as a result.

By contrast, countries in northeast Asia, even culturally insular nations such as South Korea and Japan, are opening up quickly to let in more people. Japan has recently radically changed its immigration policy and is trying to bring in at least half a million workers across various sectors over the next five years. Because of Asia’s enormous demographic catchment area, and because countries are liberalising immigration policies and reducing barriers for entrepreneurs and migrants, Asians are attracting other Asians much more effectively than before. Internal migration within Asia is proving to be a very important stopgap solution for those cities that have high-quality infrastructure but are rapidly depopulating, like Tokyo or Seoul. Australia is another example: it has a strict but very open immigration policy, a large foreign-born population, and is now attracting a number of high-net worth individuals from all over Asia. That’s proving to be very beneficial for the Australian economy.

You’ve written about the sustainability pressures on cities. In which areas has progress on sustainable urbanisation been made, and in which areas do we need urgent action?

We need action on everything from carbon emissions coming out of industrial areas to the creation of an urban agricultural ecology that would reduce the footprint of agricultural supply chains that cities depend on. We need to reduce automobile emissions and use much more off-grid power. The good news is that the cost of green technologies is coming down substantially. We’re designing buildings of the future more cheaply.

Which cities are doing it first and fastest? Many people would be surprised at how innovative a place like Ho Chi Minh City is. A city with 20 million people, it is developing a whole new eco district. Vietnam has a command economy that has partly enabled this. But the lesson is not that you need an authoritarian government to be sustainable; the lesson is that because the cost of sustainable urbanisation is now so substantially reduced, even poor countries can take decisive action. The great hope is that a poor country like India is going to implement some of these technological ‘leapfrogs’. There is evidence it is already doing this, with programmes around waste energy and wind power and so on.

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